Money with a dash of Funny: November 2016

Wednesday 30 November 2016

VAT CAT

"There is also some interesting "stuff" in there on contributions of those who have been assessed. Individuals contributed the bulk, and personal income tax rates revenue growth was 10 percent more than last year. 35 billion Rand more. Pat yourself on the back. VAT is the second biggest contributor - 281.1 billion Rand."

To market to market to buy a fat pig A mixed bag of stocks once again on the local front, with the grand outcome being that the all share index closed a smidgen lower (down 0.07 percent) on the session to just above 50 thousand points. Smidgen is more cooking terminology, perhaps I should use a wee bit. Sliver? Whiff? Nah, let us stick with smidgen or whisker when describing levels in the equities markets.

The most televised event of the day locally was the outcome of the ANC NEC meeting, I am not too sure what people were looking for. Somethings will happen by process, others ..... not so much. Anyhows, best leave politics to those who are in the interest of watching the board and wondering which piece is likely to move first. I did enjoy these two things going on yesterday, first a tweet from two evenings back from a prominent member of an opposition party:

That tweet is fully loaded with all sorts of animal references. And then unfortunately the spell checker got things horribly wrong over at Bloomberg, and made a reference to a big cat. I took this screenshot and somehow could not help myself. Sorry to all incredibly hard working journalists out there. One mistake ....

We do not have Pumas here now ..... only when the Argentine rugby team come to ~~win~~ town. So it is settled then? President Zuma the Puma?

Locally we had numbers from Omnia, which is a stock we used to hold. It is tough out there, agriculture looking a little worse for wear, as is mining (explosives). Revenues were three percent higher, gross profits were 11 percent lower, the dividend payout was lower, 160 cents now relative to 180 cents last time. An interesting line in their results: "The volatility in the rand continues to be difficult to predict and plan for and management remains conservative in its planning processes." And then another: "Recent events suggest that the outlook for a resolution on the political and economic deadlock that has plagued South Africa for several years is more encouraging."

What this means however is that there is improvement, at least from a sentiment point of view. A deadlock and lack of clarity in politics spills over into the business world. Which equals a lack of long term decision making and a lack of planning from business. Which means lower tax receipts, we could see that in the SARS numbers, released yesterday - Joint Media Release by the National Treasury and the South African Revenue Service. Some interesting statistics in there. As a percentage of the overall tax collections, companies now account for only 18.1 percent, down from the peak in 2008/2009 at 26.7 percent.

There is also some interesting "stuff" in there on contributions of those who have been assessed. Individuals contributed the bulk, and personal income tax rates revenue growth was 10 percent more than last year. 35 billion Rand more. Pat yourself on the back. VAT is the second biggest contributor - 281.1 billion Rand. There it is. Notwithstanding companies reporting tough times out there, notwithstanding the political shenanigans, notwithstanding the lack of direction on policy, the total collections rose 8.5 percent to above 1 trillion Rand for the very first time. 1.07 trillion. Certainly we could do a whole lot better though, and if the economy is firing on all cylinders, all taxes will be higher and all social programs can be funded in full. And be better. Not so?

Over the seas and far away in New York, New York, stocks closed the session out a little better than where they started, well off the best levels of the day. The Dow added 0,12 percent, the broader market S&P about the same and the nerds of NASDAQ added just over one-fifth of a percent. There was a strong GDP read, the second look at the third quarter in the US that crushed expectations, 3.2 percent year on year seems like a grand old number to me, doesn't it?

There was also a Case-Shiller index release, that is what measures the value of the US home prices in certain areas. This index is now at the highest since mid 2006. Of course people are far better off now than then, not so? In fact, that graph is worth taking a look at, this courtesy of the Business Insider - A key measure of US house prices shot past the highest level since the eve of the last crash. I am not too sure about the headline though, the Business Insider feeds off gems like that!

So, there are some buyers who would have been underwater on their mortgages (the outstanding debt worth more than the actual selling price), this metric is starting to shift pretty quickly. By my reckoning, at a national level (if you follow the bigger solid line) that 16 years after the turn of the last century, house prices in the US are around 80 percent more now than they were then. By the same measure, stocks have not really done as well. The S&P 500 is up 50 percent since then.

I guess on paper those are not the worst returns in a very low inflation environment, you would expect more, not so? Consumer confidence also reached the highest level since mid 2007. It was all happening as Bill Lawry would say. All this seemed to spur stocks on, the march continues. All the while the Donald is looking for more people to fill posts, these are some great pictures that I saw on Twitter of dinner pictures with Mitt Romney. Yip, they met at the Jean-Georges restaurant, a three star restaurant in the Trump International Hotel. Lovely area.

And we even know what Romney, Trump and Reince Priebus (he is the incoming White House chief of staff) ate. Yes. Steak and Lamb chops for the main course. Scallops, frogs legs and garlic soup for entrees. Who looks like the frog legs guy? - Mitt Romney, Donald Trump Dine at Exclusive NYC Restaurant Amid Cabinet Speculation. Sigh. Does it matter what they eat? Really?

Linkfest, lap it up

There is no doubt that Uber has shaken the taxi industry. Part of Uber's success is based on it being a market place where willing drivers offer up their services and willing customers request the service based on real time information about each party. The driver does not have to accept the ride if the customer has a poor track record with other Uber trips and visa versa. This market system means that pricing fluctuates with demand and it means that Uber the company does not get bogged down (and need to charge more) dealing with labour relations issues. - Uber in landmark E.U. court battle to escape strict rules. More rules in this case will be a bad thing.

Sticking with Uber, they subsidise the drivers in India to increase the number of taxis available, which improves the user experience for customers, where hopefully a large customer base is built to carry the number of cars on the road - Ola and Uber are pampering customers with new features but Indians only want discounts. It is a brave business model to run at a substantial loss for a number of years to hopefully make a profit on very small margins.

Holidays bring happiness and rest to most people. Once you have taken a holiday your productivity levels at work are better than when you left - Forget your wedding day or even having a baby, travel is the secret to true happiness. Based on the title of the article you can see that a travel company paid for the research. The fact remains though, holidays bring happiness to people.

Home again, home again, jiggety-jog. It is ADP numbers today, that is the payrolls people estimate of the non-farm payrolls number that hits the screens mid afternoon Friday! There is also something that regularly arrives every 45 days called the Fed Beige Book, which gives a summary of economic conditions inside of the Fed districts. Next one, January the 18th! Standby for what is a busy week of economic releases!

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Monday 28 November 2016

Uncertainty Can Be Your Friend

"As long as your thesis still holds true, you should continually be adding to the same companies. You wouldn't sell your house if your neighbour sold their plot of land or house at a discount relative to the last sale price, if anything, you would think about buying that asset. Why didn't I get a piece of the action?"

To market to market to buy a fat pig Stocks were a deep mixed bag here locally yesterday, mostly as a result of the much stronger Rand through the session. The Dollar rally ran out of steam, at least for the time being. The Business Insider chart of the day was the strength of the greenback relative to the rest of the majors, only the Pound Sterling (which was way weak at that point, to the Dollar ) has been stronger - The dollar has been on a tear since the election. So, rates in the US are likely to go higher, relative to these currencies. And that makes the Dollar more likely to attract the flows in the nearly decade long search for yield. Ever since rates were and have been driven lower across the globe, in most developed markets, the search for yield has been on. So expect the Dollar strength to be somewhat justified.

So why the stronger local currency? In part the favourable outcome to the two ratings agencies Friday, remember that Standard & Poor's give their feedback before the week is out. That could be the key one of the three agencies. Should you care? Yes, the interest bill that we all have to service on government debt impacts on all citizens. And visitors, I guess you charge them higher VAT in order to make it up. Although visitors can always come back with their VAT refunds, I am sure that the "participation rate" of VAT is not always what it could be. We must celebrate a stronger currency, that leads to lower imported inflation, and that definitely has an impact on the poorest of the poor, who have a far larger percentage of their spend on food.

OK, let us finish the market segment quickly, locally stocks as a collective slipped nearly a percent, financials were up just over nine-tenths of a percent, banks were up over three percent and mining stocks were down two and a half percent. General retailers were up nearly one and a half percent, industrials sank by exactly the same amount. There's it, as a famous local Youtube star says, a mixed bag. No DIY of any sort for you. MTNZ are embarking on an accelerated bookbuild to retire the debt associated with the scheme, and as such will sell 21 million shares in a rush. Someone is going to get a bargain, I guess that is the way that the deal is structured. It was unsurprising then to find the stock near the top of the list of losers. A list that you don't want to make, like ever. Stocks with a strong Rand hedge element sank sharply, Mediclinic, BHP, Old Mutual, Bidcorp and AB InBev found themselves on the wrong side of the thin red line.

Over to the other side were the banks and financials. Having a good time, Barclays Africa up 4 percent, RMBH up over three and three-quarters of a percent. Tiger Brands, since their recent results, have been on the charge, that stock touched an all time high earlier in the day. Over the last year the stock is up nearly 22 percent. Over ten years that is a pretty astonishing 231 percent, plus do not forget the very decent dividend flow. Another in the majors making a new 12 month high was Barloworld. So much for ZA inc stocks being out of favour and the wrong flavour.

Mind you ... general retail is down nearly 18 percent over the last 12 months, Industrials as a collective are down 12 percent plus over the last 12 months, financials are down 8 percent over the last year, it has been tough out there. The collective, the all share index, is down two and three-quarters of a percent in this time. Pharma is down 6 percent. Healthcare is down nearly 19 percent. So much for defensive. The only sector showing any signs of life is the resource sector, the resources 10 is up 27.66 percent over the last year. More on this in a bit.

Over the seas and far away in New York, New York, stocks sank, some suggested that perhaps the Trump off trades were starting to happen. Energy stocks sank the most as the OPEC drama continued. I for one am very tired of the correlation between stocks and the oil price, it is the one commodity that any single person using powered transportation uses day in and day out. According to CNet, Cyber Monday edged out Black Friday in total sales (Another Cyber Monday, another online sales record), as we reminded you last week though, singles day through the Alibaba platform is far bigger!

At the end of the session the Dow Industrials had shed around one-quarter of a percent, the nerds of NASDAQ gave up over half a percent, as did the broader market S&P 500. Amazon, Wells Fargo, Bank of America and some big energy stocks were losers, Alphabet (Google) was amongst the resource stocks (Vale and the like) in the winners column. Oil, Trump, the Fed? The Dollar? Hey, if that wasn't enough, remember that it is jobs Friday coming, the last real look for the Fed before they inevitably raise rates in just a few weeks from now. That would be some sort of relief, don't you think?

What is going on with equity markets globally, more to the point in a South African context? As you can imagine, we are fielding calls and emails (and WhatsApps) from concerned holders of equities. I can't think of many people who get excited about watching the value of their equity portfolios sink, unless they have plenty of resources to add at any given point. As we pointed out above in the moves on specific sectors, it has been a poor time to be invested in equity markets locally, unless of course you have held the line on the resource stocks. Mostly everywhere else it has been downright tough and a little disheartening. I do not like to compare one time to another in markets, I do not think it is fair. They didn't sell iPhones or Xbox's back then, nor were people posting selfies on Instagram or self destructing messages on Twitter or Facebook.

So whilst we try and find reasons for the re-rating of certain stocks, again it is tempting to draw on ones experiences in investing. And again find comfort in the fact that whilst share prices may be well off their all time highs, the underlying businesses (that produce the profits that reward shareholders) are in good shape. Obviously not all of them, I am pretty sure that the operating environment for Brait for instance could be a whole lot better. The unknowns of Brexit means that there is a fair amount of uncertainty associated with the stock.

Mediclinic is another stock that at face value looks like it has done extremely "badly" and in Rand returns it has. The price, since the rebasing and the new version of the London listing, has fallen dramatically in Rand terms. Remember that the company reversed into the Al Noor London listing, see - Mediclinic corp action. Since then, the stock in pounds is down 14 percent, most recently as a result of the tricky operating environment in the UAE, with healthcare benefits under pressure and quality staff hard to find, see - Mediclinic half year numbers - not going so well in UAE. In Rand terms, the stock is down around 30 percent.

So what to do? Nothing really. Investing is about time, learning when to react and when not to. Learning when just to hold the line in the face of very trying times and circumstances. As long as your thesis still holds true, you should continually be adding to the same companies. You wouldn't sell your house if your neighbour sold their plot of land or house at a discount relative to the last sale price, if anything, you would think about buying that asset. Why didn't I get a piece of the action? That should be the same reaction when dealing with your equities portfolio. Stand by for more on this in the coming days.

The Mannequin challenge. What is the point? I mean, are they raising money for some good cause? Nope, it is just a form of entertainment. In their hands, they have the tools to shoot (smartphone) and then upload (using 4G from your network or a wireless infrastructure, locally MTN, Vodacom, Cell C and Telkom) to their favourite platforms (Instagram, Twitter, Facebook, Youtube) for other people (friends or "friends") to see.

All this would not be possible without the huge infrastructural spend across the various tools available. Think about it, all these businesses, from the smartphone business that creates the cameras in order to take the crisp images, billions of Dollars of R&D have gone into that phone, the networks that spend billions of Rands in order to keep pace with the speeds that their customers want and need. And then last, if not least, all of the platforms have spent so much on server farms and software. Youtube is the largest streaming business in the world. Yet consumers demand more. They want quicker speeds, better cameras on their phones and easier to use platforms. All this requires spend, loads of it.

See the wiki entry try and explain it - Mannequin Challenge. I have got to hand it to the people of Cape Town, this one in Camps Bay is epic. Here is whole bunch of them from around the world - 13 of the best videos you need to see. So ..... the next time that you see one of these or partake in one of these, know that a mere decade ago this would have been nigh impossible to achieve with your phone and network back then. Perhaps the platforms, some of them at least, were there.

I found out something pretty amazing and strange. We all know that (the infamous, for obvious reasons) Guantanamo Bay is in Cuba, and we all (sort of) know the details of the lease agreement between the US and Cuba. It may have been a few tough days in the Cuban missile crisis to have been a US naval officer there, can you imagine? What I didn't know is that there is a McDonald's there. Equally strange is that the Cuban government, since Castros took power (Raul is still in charge), have only cashed a single lease check, in error apparently in the early days of the revolution.

Each check is for 4,085 Dollars a month in rent. For a little more than that, you can have this Nice clean style apartment in Central midtown near Javits. You would have to say that the deal is a bargain for the US and one of those strange historical agreements. When Fidel Castro was still in charge, he kept these checks in his drawer. Uncashed. That is 57 years and 10 months (nearly 11) of uncashed checks. So .... the USA has issued checks to the value of 2,834,990 million Dollars for 694 months of rental since the Cuban Revolution finished, 1 January 1959. And one has been cashed.

Now, according to Statista (Big Mac index - global prices for a Big Mac in July 2016, by country (in U.S. dollars)), a Big Mac in the US (close enough) costs 5.04 Dollars. So this amount owed is equal to 562,498 Big Macs. Or, a whole lot of Cuban cigar, like this Hoyo de Monterrey Hermosos No. 4 Anejados, costs 22.5 Dollars. For the money owed that is 126,000 cigars of this kind. Either way, it is just weird to think that all along, there has been a US presence deep in one of the last bastions of communism. The case of the single McDonald's and the uncashed checks.

Linkfest, lap it up

The tech industry is getting creative with how to reach the unbanked - No Credit History? No Problem. Lenders Are Looking at Your Phone Data. Once people know what metrics the fin-tech companies are looking for, you can expect behaviour changes, with perceived negative behaviour reserved for a second cell number.

The Nasdaq is in record high territory but on an inflation adjusted metric we still have some time to go until we reach the highs of 2000 - Putting the post-Trump stock market rally in perspective.

I think we sometimes underestimate the power that a brand has in making us buy something or more importantly makes us continually come back and buy it again - Skateboarder Tony Hawk said he had to destroy his brand to learn its value. A strong brand is a moat against other competitors, which is one of the reasons that we like Tiger Brands. I used this brand growing up, I will use the brand now and my children will use it and so the cycle continues.

Home again, home again, jiggety-jog. We have opened slightly up. Currencies, politics, commodities, jobs numbers, interest rates. It's all happening here during the close off of 2016.

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Online is Prime

"There are lots of moving parts in these numbers, as there always are with Naspers. In order to keep abreast with an ever changing world, the company has to be constantly on the lookout for the next big trend in consumer entertainment, that is what they are, an entertainment and internet services business."

To market to market to buy a fat pig OK, so Fitch released their "rating" on South Africa. As we said, this is a rating on the credit worthiness and the ability to pay back the money over time. These are independent agencies advising bond buyers on whether or not they think that South Africa can, or can't afford over time to pay their creditors. If I bought a 10 year government debt instrument today, would they be able to return all my capital when the instrument matured and would they be able to pay me all the interest? It is as simple as that. If the rating sinks to non-investment grade, as per the actual definition, then this becomes the reality. So yes, it matters. There will of course always be investors that look for higher yields and are willing to take on the relative risks associated with your debt. As such, that is why in personal capacities that some financial institutions may give you the credit, others may not.

At the end of the session the Rand had weakened. Some of the Rand hedges caught a bid, the index closed the session up one quarter of a percent. Perhaps the positive Naspers lifted the broader market. Steinhoff and AB InBev also had a good day. On the losing front were the commodity stocks, the single commodity stocks like Amplats, AngloGold Ashanti and Sasol. Today the Rand has caught a bid, more to the point, the Dollar's momentum has been stopped in its tracks.

Over the hills and far away in New York, New York, in a shortened session that was influenced by pumpkin and turkey and ended early, stocks rose to records again. The Dow Jones added just over one-third of a percent, the broader market S&P 500 added nearly four-tenths and lastly the nerds of NASDAQ tacked on just a whisker over one-third of a percent. Energy stocks sank half a percent. There is the small matter of a meeting of the oil producers in order to test production levels. My view on this is simple, let the market take care of the market, your collusion will not address the price in the long run. In fact, if you keep an elevated price, the alternatives will be more widely adopted, that will be the consumer and the free market response.

Political ideologies are best kept to politicians and economists, yet it is the people that suffer from the missteps that do not work in practice. If I tell you that in a perfect world we should all be equally rich and enjoy the same things as one another, access to quality healthcare and education, you would think that is a very noble idea. And it is, in theory. What it does do however is ignore the human element, we are selfish and motivated to do the best by our family and friends. In other words, whilst again it is noble to think that we are born all equal, this is not the case with our genetic makeup. Some are physically stronger, some are mentally superior. Some are quicker on a track, some are quicker at math. If we were all born the same, with the same prospects, then in theory the idea of all being equal would of course work. Except this is not the case.

Capitalism is not the best idea we have, it excludes many people as they may not have the necessary skills to participate in a certain kind of democratic dog eat dog world. Not everyone thinks that capitalism is fair, and I certainly get it. You can be born into privilege and continue to live a superior life to someone that is born into poverty. However, given the same skills, the playing fields are equal and the cycles (both of them) can change. There is actually a saying in China, Japan and of course the US that uses different variations of the following. Here goes, which country is which?

"Rice paddies to rice paddies in three generations.
Wealth never survives three generations.
Shirtsleeves to shirtsleeves in three generations."

The last one in the US, the top one in Japan and the middle is China. What are these saying about and what is the meaning of these? Well, grand-dad/grand-mom works hard to build their own personal empire, sons and daughters work less hard with more resources and then the third generation squanders it all, as life is too easy. Abundance is everywhere. And this is capitalism, it rewards those further down the line from the point of wealth creation, generational wealth. They can choose to do with it what they want. Often first generation folks give away a lot of money, think of the giving pledge. There are a whole host of people on that list that you recognise. Yet .... there are no dictators, or communists ....

Which brings me to my point. This weekend marked the passing of Fidel Castro, a man that depending on which side of the aisle you sat, elicited a different reaction. A freedom fighter and revolutionary for one can be seen as an oppressor and greedy to others. For instance, Canadian Prime minister's tribute to Castro has "raised eyebrows" (Trudeau faces backlash after Castro tribute) and equally, so has Trump's statement, he called Castro a "brutal dictator who oppressed his own people for nearly six decades". Herewith an interesting Washington Post story - In wake of Castro's death, his legacy is debated.

I was expecting something like this from Mark Perry, a man who champions individuals and the best of capitalism, who noted this post from the Washington Post too - 13 facts that should be etched on Castro's tombstone and highlighted in every obituary. Makes you think, doesn't it? If you have to force people to comply by the barrel of a gun, then I am afraid that perhaps your methods need a re-work.

In almost all these instances, my rule of thumb is what would ordinary people do when faced with these choices? To live under the oppression or to find something else? All you need to do in this case is to look for which direction the unlawful migration was heading (which way is the boat going, which wall are the people jumping, which fence are they climbing under?), were people facing death while trying to get to freedom away from that place, or towards that place. That would answer your question, I think, about what individuals thought about the person and the place that they used to live.

In closing, here is a graph of Socialism versus Capitalism, the economic prowess of South Korea versus Cuba over a 50 year period - GDP per capita (current US$). You be the judge as to whether the people "did better" or not.

Company corner

Naspers delivered results on Friday afternoon. First thing to remember is that back in April the company changed their reporting currency to Dollars, for the purposes of standardising across multiple geographies. As they point out in these results, revenues derived outside of the borders of our country represent 80 percent of total revenues, so it makes sense to report in US Dollars and not Rands anymore. This is a sign of the business continuing to mature and attract more customers across the globe, as we often say, you cannot carry your hopes on only 50 odd million customers, you need to attract all of them, all across the globe! As the release points out, costs for their ecommerce business are incurred in the local currency, as such the currency movements are "diffused", whereas in the video entertainment segment (TV and streaming) you earn local currencies, your costs are in Dollars. i.e. your subscribers are buying content in local currencies, you are paying Dollars for said content.

There are lots of moving parts in these numbers, as there always are with Naspers. In order to keep abreast with an ever changing world, the company has to be constantly on the lookout for the next big trend in consumer entertainment, that is what they are, an entertainment and internet services business. When one says internet business, immediately the normal reaction is one of confusion amongst investors. Yet many of Naspers' websites are simply service related tools in order to buy used goods, classifieds in order to get that product or simply to book that trip or obtain pricing comparisons. All they are, their various global websites, are enablers of the same thing we know (payments portals) for the same thing. They just take place on the internet, which is another method of doing the same things. I think that some people just miss this.

As the group states on their website: "We believe in the power of local backed by global scale and we look for opportunities to address big societal needs in markets where we see the greatest growth potential." Sounds pretty simple, right? OK, moving swiftly along ...... Herewith the interim results release to September 2016. On a segmented basis, herewith a table from the results:

And then of course, you can have all the revenues in the world, you need to be profitable, herewith trading profits from the group:

It is fair then to say that the group is undergoing another metamorphosis. Entertainment and video (i.e. streaming) is taking up some serious monies, high spend in order to get the content that the customer needs and wants. The evolution of TV is going to be huge, and is ongoing.

So what do you get when you buy and own this business? You get insightful management who are in tune with global entertainment and global ecommerce trends. They will sell and buy assets that they perceive to be in segments that either are ex-growth or pre-growth. Ecommerce looks like a great business, operating in many non-english speaking countries as the dominant player. Interesting that the group points out that Flipkart in India is experiencing strong competition from Amazon, that is to be expected. That fellow Bezos says that he sees India as a huge opportunity. I suspect that all of the majors in India, provided that they have a fairly dominant market position, will do well. Flipkart and Amazon will both be "ok".

The prospects outlook is as follows: "In the second half of the financial year we hope to deliver revenue growth and scale to the more established ecommerce businesses. The group will continue to invest in long-term opportunities such as letgo, and seek further promising models within the internet segment. We expect to accelerate letgo's development spend to further strengthen its position in the US classifieds market. In African video entertainment, a tough environment at present, we aim to grow DTH customers by offering increased value and reducing costs to counter the impact of falling currencies. Earnings and cash flows in this segment will continue to be constrained in the foreseeable future."

In short, expect more of the same. Do not expect huge dividends from excessive cashflows. Expect the group to invest heavily in what they perceive the future to be. Expect them to sell some businesses that you may well like as an investment, expect them to buy businesses that have good growth prospects and look at face value as unprofitable (for now). Expect volatility. That said, we continue to recommend the company, and we expect the continued strong growth in revenues to translate to higher profitability. The sum of the parts valuation is important here. In our view, Naspers is undervalued and should be bought on weakness, that currently exists.

Linkfest, lap it up

Like anything that you read on the internet you should take some time to think about the validity of what is being said. The same goes for financial journalism; "does the journalist understand what they are writing?", "what time frames are being referred to in the article?" and "are the points being raised valid or just there to sell stories?" - NIRP. . .I Was Promised Negative Interest Rates from Main Stream Media and All I Got was Trump.

India scrapping their 2 biggest bank notes has meant that digital payment platforms user numbers are spiking - "A 7,000% increase" and other WTF numbers thrown up by digital payment firms post-demonetisation. A large number of people in India don't have bank accounts, so having access to digital payment platforms is a good thing.

Time will tell if poaching will have long term impacts on the DNA composition of elephants - Is Poaching Causing Elephants to Evolve Without Tusks?.

Home again, home again, jiggety-jog. Markets have started better here at the get-go. Markets across to the East are better, on balance. US futures are lower there too, perhaps a little period of excitement around the Donald has subsided a little, we shall see when the man actually gets to sit in power. Trump has had 34 thousand tweets since March 2009. There have been approximately 2800 days in-between the end of March 2009 and present day. Roughly 12 tweets a day. Interesting. Or one every two hours.

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Friday 25 November 2016

Hold. . . Hold. . .

"Yesterday the SARB MPC delivered their verdict of the lay of the land. Their view anyhow. Which has been a little rosier than most over the years, perhaps they share my optimism. Firstly - Statement of the monetary policy committee. The flows post the US elections have been away from EM. The Reserve Bank Governor Lesetja Kganyago said something that we are all worried about: "The prospect of rising protectionism and its implications for world trade are also a concern." "

To market to market to buy a fat pig Yesterday the SARB MPC delivered their verdict of the lay of the land. Their view anyhow. Which has been a little rosier than most over the years, perhaps they share my optimism. Firstly - Statement of the monetary policy committee. The flows post the US elections have been away from EM. The Reserve Bank Governor Lesetja Kganyago said something that we are all worried about: "The prospect of rising protectionism and its implications for world trade are also a concern."

With these new levels for global bond markets and expectations for interest rates to rise, the expectations for inflation has risen on the local front. The inflation outlook has deteriorated a little as per the Selected forecast results: MPC meeting November 2016. Some of the hardest things to do are to make these types of assumptions, equally they had these Summary of assumptions on growth and exchange rates, as well as food prices and government debt. For those with debt the REPO rate is not expected to rise through 2018, that is at least the forecast based on the current assumptions.

Growth rates are anaemic. It is possibly fair to say that any government intervention in the economy has not yielded the results that they would have wanted. That is a political ideology debate, one that you will not win. It is not easy for the haves to understand the past as much as the have nots, most especially as a result of our history of separation of races, which was also a separation of economies and opportunities. Eduction is key to the change of everything, if everyone has quality education, the doors to extra opportunities open. Again, the ideological debate around what the state should or should not do in the economy is another matter entirely. For the time being the large part of the voting base has given their mandate to the state that has their own ideas of how economies should work. So, until either the ruling party changes their ideological approach, or someone else is given a chance, expect more of the same for the time being.

And. Wait for it. There is the small matter of Moody's making their decision on South African sovereign credit ratings today. Standard & Poor's decide next week. Fitch before the year is out. Last week Bloomberg had the following article - South Africa Junk Rating Seen Inevitable, This Year or Next. The article suggests that even if we get a pass now, the chances of us hanging onto investment grade through next year is around 20 percent. Like Lloyd Christmas says to Mary "Samsonite" in Dumb and Dumber, "So you mean there is a chance?"

Seeing as yesterday was when turkeys were being devoured left right and centre, pumpkin pie and all the rest, thanks being given for all sorts of small (and big) things, volumes and direction was hard to come by. At the end of the session the all share index had lost 0.11 percent, resources rallied nearly a percent and a half, financials fell nearly one and one-quarter of a percent. The gold price since the Donald became president elect, the gold price is down around 8 percent. Why? The strong dollar often brings about softer commodity prices. Yet ..... commodity prices, other than precious metals have caught a strong bid as Trump suggests big infrastructure build. We will see if he (the US) can afford it, or has the gumption for it. And, at the same time the Fed is likely to raise rates in December. No, not likely to raise rates, definitely will raise rates, the markets have it at 100 percent.

Company corner

Bidcorp delivered another trading update to analysts yesterday. It was a Management update on general trading conditions. This follows on a similar type of statement from two weeks back at the AGM. They talk about Brexit and currency volatility. In their UK operation they have managed to lock in a customer for the next five years and the pipeline looks good, the market is fragmented and they have an opportunity to consolidate further. Eastern Europe looks better than Western Europe. The South African business amongst their emerging market businesses looks decent enough. Mainland China is good, Hong Kong not so much, the tourist numbers are lower. Things in Brazil have seemed to have steadied.

What is pretty amazing is that they have managed to make 8 bolt-on acquisitions. And it is all around, Brazil, Italy, the UK, Belgium, Australia (3 businesses) and New Zealand. They even suggest that they could be in the business of looking for new geographies. All in all, a lack of food price inflation is a bit of a negative (that may change), in the UK there are early signs that it may pick up. My take from this general update to the investor community is that the company has seen volatility, all is good in the hood though. Better than people anticipate. We really think that this is a great investment theme. Food preparation and more people eating out. We maintain our buy rating on the business.

Linkfest, lap it up

This is a great display of what solar can do - Tesla powers a whole island with solar to show off its energy chops. The article doesn't say how long this solar system needs to be in place to recoup the cost of building the system, none the less this shows where the globe is heading.

Having context of market history doesn't help us predict the future but does help us understand the different emotions that drive markets - How Things Have Changed on Wall Street in the Last 50 Years. The biggest change is probably how fast information is spread and the rules limiting insider trading.

The next generation of computers is quantum computing, which will use quantum physics to change the way computer chips process information - Microsoft Spends Big to Build a Computer Out of Science Fiction. If Microsoft makes the break thorough to develop this system, it could be huge for R&D breakthroughs in the drug industry.

Home again, home again, jiggety-jog. It is a half day in New York today, expect another low volume day. Japanese markets are marginally higher, Chinese markets are looking better. US futures are around one quarter of a percent higher on the Dow, a little less on the S&P 500 futures. We should start a little better here. There will be Naspers results today. And whilst it may be the hustle and bustle through Black Friday today (and Cyber Monday), as well as just being one month to Christmas. Yes. Today is a month away from that.

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

Attention: One of our sub-tenants is moving to Cape Town so we have some open offices to lease. There are 2 spaces available, one is 32 square meters, the other is 12 square meters. Fully serviced, in Melrose Arch. Please get in touch if you are interested.

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Thursday 24 November 2016

9 Lives

"Tiger brands reported their full numbers to end September, both the CEO Lawrence Macdougall, (relatively new at the business) and the CFO, Noel Doyle, (an old timer at the business) were on the telly yesterday on CNBC"

To market to market to buy a fat pig A local inflation read, comfortably outside of the South African Reserve Bank band yesterday threw a spanner in the works. Low growth and higher inflation are not the parameters for much wriggle room, neither for all participants in the economy nor the Monetary Policy committee, who has the job of controlling inflation. Their toolbox is small, there is little they can do other than hike rates. And I guess that may be coming, expectations are for at least the moment to show no change. For now.

From a great position mid morning, in which stocks enjoyed the afterglow of US record setting markets, we slumped towards the end of the day, the Jozi all share index slipped nearly a percent. Resources were the only sector that was in the green. Just before the slump in banking stocks there were new 12 month highs for Standard Bank, FirstRand and Nedbank. By the close Nedbank was four percent off their 52 week high and over three percent down for the day. South32 and Anglo American were amongst the top winners on the day, followed closely by Bidcorp and Tiger Brands, Tiger of course printed numbers, see the full write up below in the company segment. No Doom! At the opposite end of the spectrum in the losers column was Naspers and Redefine. Parliament, that was full of cryptic messages, I guess politicians will always act in that sort of manner.

Over the seas and far away in New York, New York, stocks were a mixed bag by the end. The Dow Industrials closed at another record, up nearly one-third of a percent to 19083, the broader market S&P 500 also closed at another record, a smidgen higher (0.08 percent) to 2204 points, the nerds of NASDAQ slipped away by the close to be 0.11 percent off on the day. Remember that today is the day of major celebration in the US, the Thanksgiving "weekend", with equity markets closed today and then a half day tomorrow. Around 46 million turkeys are eaten today in the US. Of course much is made of Black Friday tomorrow and Cyber Monday after the weekend. The shopping kicks off for the holidays, I hope that you have written your lists and make sure that they are all in order. Quickly!!!

Two big moves from some majors, unfortunately for Eli Lilly (the stock sank over ten and a half percent by the close), their Alzheimer's Drug Fails Trial. They have been trying really hard in order to crack this crippling ailment, your mind is the most powerful thing you have. Eli Lilly has tried hard here and has unfortunately for humanity shelved this research for a while to focus on other avenues, future blockbusters.

The other stock in a completely different area, John Deere (Deere and Company actually), had a cracking time, the stock was up 11 percent by the close to an all time high. The stock has not had the best of times since the financial crisis, in the commodity height of May 2008 the stock was a mere ten odd percent lower than it is now. The best time to have collected that business, along with many other generational lows was in March of 2009. Nearly 30 Dollars a share back then, since then the stock has quadrupled. Mind you .... the S&P 500 has done about the same. Still, this is a good brand and a business that will always have customers, from combine harvesters to landscaping. Great gear, loyal customers, the share price is aligned closely to commodity prices, which is a tough old ask to be "sure" of.

Company corner

Tiger brands reported their full numbers to end September, both the CEO Lawrence Macdougall, (relatively new at the business) and the CFO, Noel Doyle, (an old timer at the business) were on the telly yesterday on CNBC - Tiger Brands FY profit up after Nigeria sale. It is tough out there, solid numbers, not altogether any volume growth, steady enough though. It is interesting how the CFO Noel Doyle reckons there is still likely to be heightened cost inflation with regards to their inputs (grains), not all of that can be passed onto the customer.

Straight to the Group Results Presentation. We were scratching around for all the brands known well to all South Africans, most especially after this slide from Tiger. This is where these respective brands sit in their categories in a survey done by Nielsen over a rolling 12 month period:

All the major brands that you would expect to be there, of course what is missing here is maize meal, that was the first noticeable thing. Or course in that department for Tiger is Ace, both the traditional offering as well as porridge, and then of course King Korn and Morvite. Breakfasts and of course side starches. Grains contribute 12.845 billion Rand (out of a group total of 31.698 billion Rand), groceries (Koo, Crosse & Blackwell, Black Cat) contributed 4.7 billion Rand. Snacks, Treats and Beverages (Oros, Energade and Maynards) sales for the full year contributed 2.271 billion and 1.326 billion Rand respectively. Home, personal and baby care (Doom, Purity) sales were 2.437 billion Rand. International, which is their African businesses, had sales of 5.386 billion Rand.

Here are two very nice graphs below of the separate businesses by revenues first, this compares 2015 to 2016.

And then after that, their operating income when compared to the year prior, 2015.

Grains (staples) is their most important business, in that part they have struggled to deal with rising input costs. As they point out, raw material costs rose 22 percent. Wow. That is a tough old struggle, to keep your costs low and to make sure that the customer certainly does not bear the full brunt of all of that. The company has managed to cut costs by 380 million Rand in the last financial year, mainly on procurement savings. Improving costs at the fringes in all departments. And of course nearly 100 million Rand saved on manufacturing efficiencies.

Consumers have been grappling with rates going up, slow economic growth and joblessness has ticked up. Consumers will "shop down" to more affordable brands, which is why Tiger and their lengthy brand association with South Africa must continually stay relevant.

Earnings! What do those look like? Total headline earnings per share increased 19 percent to 2127 ZA cents, dividends for the second half was 702 cents per share, bringing the full year dividend to 1065 cents per share. At the closing price last evening the stock traded up nearly 2 percent to 392.24 Rand, the multiple historical is now 18.4 times, with a dividend yield of 2.72 percent. It is hardly the cheapest of all the stocks around, we have seen some of the retailers beaten up lately. The analyst community have the stock trading forward on around 16 and a half times. As the company pays out around 50 percent of all earnings in dividends, the dividend yield forward is over three percent.

This is a keeper. This kind of business continues to make progress year in and year out. The company will not be the overly volatile one in your portfolio. Volatility in earnings and by extension share prices is enjoyable when share prices go up, not so much when share prices go down. Tiger has certainly had their fair share of problems over the last half a decade, Nigeria is now a bad memory and out of the equation. We will accumulate this business on weakness, it is almost as timeless as some of their brands. Hey, Black Cat Peanut Butter turns 90 this year, remember these two classics - Black Cat - Packed with Protein Power and Black Cat Peanut Butter - The Boy with Nine lives. Classics, ha ha!

Linkfest, lap it up

While Trump is still president-elect, peoples imagination of what Trump is going to do while in the White House can run as much as they like - For Analysts, Trump Can Literally Make Everything Great Again. Even if analyst assumptions about Trump policies are correct, how they play out in reality will be different.

If Amazon can make the live sport streaming, business model work it will be a game changer for the entertainment industry. At the moment, sports rights are very expensive, so it is very difficult for companies like Amazon and Netflix to include live sport in their packages - Amazon is in talks to start streaming sports on Prime

If you ever need an example of why governments should leave economies alone and in particular the currency markets, have a look at the Nigerian Naira - To save its currency, Nigeria's central bank wants people jailed for holding on to US dollars. The currency is weak because it is incredibly difficult to get your hands on foreign currency, by trying to manage their currency they are only making things worse for what they re trying to prevent.

Home again, home again, jiggety-jog. Stocks will likely have a low volume day across the globe, both today and tomorrow. Japanese stocks are higher. Shanghai and Hong Kong are mixed. Stocks here have also started mixed to higher after a bit of a late afternoon pasting yesterday. Let us hope, that unlike in the last little while, it stays that way!

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Wednesday 23 November 2016

Stay Rich

"Lastly, when asked What is the most important skill in finance?, he had this to say: "The most important quality to do well is temperament which would permit the control of fear and greed which have ruined many. Anyone who has become rich twice is dumb. Why would you risk what you need and have for what you don't need? If you are already rich, there is no upside to taking on a lot more risk, but there is disgrace on the downside." "

To market to market to buy a fat pig Dow 19000. New improved model, comes standard with the usual anxiety and a whole lot of hot aired commentators. Doesn't do bears, likes bulls. Unless the bears are ready to short and know something that the rest of the market does not. Dow 19000 for the first time last night sports lovers, it took over thirty years for the index to increase from 1900 to 19000. It took less than three weeks for the index to rise from below 18000 to the present level.

The moves north have been breathtaking, the whole idea that the Donald could re-ignite infrastructure spend have been grabbed with two hands by Mr. Market. What is also quite interesting (hat tip to the Daily Shot) is that USD emerging market bond funds are seeing significant outflows. Commodity prices meanwhile have been going bananas, materials stocks last evening in New York closed nearly 2 percent higher, energy stocks also getting a small lift from higher prices (and then lower prices) as OPEC tries to reach some sort of cut and freeze on production with Russia. Will it happen, won't it happen? Gosh ..... I don't know and nor do I have any useful insight. All we know is that with budgets under pressure, the volumes have kept their expanding pace, the world is awash with oil.

The only sector not feeling any love was healthcare, Medtronic tumbled nearly 9 percent as their last quarter sales disappointed the investor community (potential investors in a company would like a lower share price, not so?), the outlook was patchy too. As a result of the market uncertainty around the Trump administration and the direction that healthcare is likely to take (less or more intervention). Caution was the watchword and that segment of the market sold off over one a half percent.

That didn't stop the markets as a collective, the closing new high water mark for the Dow Jones is 19023, the new and fresh all time closing high for the S&P 500 and the nerds of NASDAQ is 2202 and 5386 respectively. All these indices were up between 0.22 and 0.35 percent, a decent enough day for all the major indices. This is of course a slow week for volumes, folks will have one eye on the Turkey, how to baste it and stuff it. Oh, and for the record, the market expects rates to rise at the next Fed meeting in December. Like 100 percent chance. Rates have continued to move higher, a two year auction yielding the highest rate in years, above one percent comfortably. We wish around these parts.

On another note separately, I saw a couple of people on the Twittersphere make reference to an incredible piece titled Warren Buffett's Meeting with University of Maryland MBA/MS Students - November 18, 2016. Why this is great is this fellow Buffett, who is now 86, has an incredible way of explaining complex "things" and making them very understandable. Twenty students, twenty questions. This is the summarised thing, I particularly enjoyed the part when he said that he was now getting hard of hearing and a specific interaction with Charlie Munger.

Equally I enjoyed the first point: "You should take a job that you would take if you didn't need a job." Easier said than done when you have a mortgage and bills to pay, right? And then on being too clever for the market as a whole - "Successful investors need to have the right temperament. Those with high IQ's frequently panic." Related in a question further down the page was "Anyone with an IQ above 130 should sell off the excess above that level." Ha ha. In other words, do not try and overthink the investment with complicated and complex models, read everything you can and then make a real investment decision and stick to it.

The question around regulation that I enjoyed the most (perhaps you would be surprised by the answer) which was put to Buffett, and why this is relevant is that the next administration in the US is looking at repealing elements of this: What is your opinion of Dodd-Frank?. Buffett answered: "We are less well equipped to handle a financial crisis today than we were in 2008. Dodd-Frank has taken away the Federal Reserve's ability to act in a crisis." And then the part that struck it home in a big way: "Dodd-Frank took this option away from the Fed. Fear is contagious. It paralyses. Confidence comes back one at a time, not by a stampede. Both General Electric and Goldman Sachs were "in the domino line". We were lucky we had the right people."

Lastly, when asked What is the most important skill in finance?, he had this to say: "The most important quality to do well is temperament which would permit the control of fear and greed which have ruined many. Anyone who has become rich twice is dumb. Why would you risk what you need and have for what you don't need? If you are already rich, there is no upside to taking on a lot more risk, but there is disgrace on the downside."

Lovely. Thanks once again for the insight of one of the best investors out there. Many enjoyable snippets in there and probably moments in the life of those students that they are unlikely to forget.

Local was lekker for the most part, other than gold stocks, most indices ended the day on a much firmer footing. The ALSI tacked on a percent to close the day out above 51 thousand points. Ratings agency people are watching as the three majors (in terms of ratings agencies) are set to deliver their verdict before the year is out. Junk is just a term that people who don't have time to do their homework hold onto with both hands, you are always going to need guidance from outsiders on what is investment grade and what is not.

The worst part of it all is that there is nothing you can do about it, perhaps that is why there is heightened anxiety around these things. It is real, certain investors have a specific mandate on what they may invest in, and if your bonds are not "investment grade" then they cannot own them. That is the simple long and short of it all. No investment grade = sell. There is of course an argument to be made that if our finances get back on an even keel, with more accountability comes a larger bang for your buck and an improved outlook. A creditworthy rating is exactly that, investment grade and non investment grade. The fact that we find ourselves here in this position, this is not necessarily something that jumps out at you, it happens in slow motion.

Unemployment figures from South Africa suggested that whilst we had actually been creating jobs, there are many more in the workforce who need to get sucked in. I have no idea what to think about the minimum wage argument, all I know is that 246 Dollars at the current exchange rate is hardly a liveable wage. We need skills and plenty of them. We all need to do our bit to up-skill and get people back on track and involved in the economy. Most of all, people need to know that they can do anything and need to be helped in that regard. Confidence is pretty huge too.

Linkfest, lap it up

I would order a pizza just to see this technology in action. To think that drones were almost unheard of 2 years ago - The future is here: Drones are delivering Domino's pizzas to customers. Note also that New Zealand doesn't have restrictive drone laws, hence the technology being implemented there.

Americans becoming millionaires the old fashioned way, inheriting the wealth - 1,700 People in America Are Becoming Millionaires Every Day. As wealth is transferred to the next generation spending patterns are changing, good news for companies geared towards a younger consumer.

Here is a quick look at historic tax rates in the US. Imagine having to pay 94% tax when in the top tax bracket - Hoover, FDR and Clinton Tax Increases: A Brief Historical Lesson. The conclusions drawn by the blogger are still up for debate in the economic community, all actions always have unintended consequences.

Whether it is religion and personal beliefs, exercise from running to yoga, eating habits (or lack thereof), being a vegan, meditating or listening to music, this is an awesome WSJ piece on How Surgeons Stay Focused for Hours. The article focuses on the different methodologies of the organ transplant surgeons and how they manage the mammoth procedures. It could teach us all about focus in the moment and then the subsequent wind down.

As online sales start to dominate a large part of the US landscape, there are bound to be many casualties - These 14 major retailers are each closing at least 100 stores. It is an important reminder of staying relevant and looking for alternative avenues, before it is too late.

Home again, home again, jiggety-jog. There are results from Tiger Brands this morning, they have a new chairman too. Stocks are mixed to higher here, Tiger is marginally higher at the get go. More on that tomorrow!

Sent to you by Sasha, Byron and Michael on behalf of team Vestact.

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Tuesday 22 November 2016

Slow and Steady

"What would you get for that return? If I had to say to you, at a yield of 1.8 percent per annum, reinvest that in a 100 thousand Dollar portfolio for 25 years and what sort of return are you like to have? The number is 2.341 million Dollars. Without doing "too much" really. Just staying patient and making sure you avoid selling when the going gets tough, or harvesting and selling as a result of feeling the market is "too high". Much of investing is doing very little most of the time."

To market to market to buy a fat pig It is a record. Another day and another set of records. Strategists and their market predictions ...... you're fired. The big haired man has certainly ignited markets in the US, not so much emerging markets. He has stoked the inflation outlook. He has single handedly in very few public appearances created this whole idea that huge infrastructure spend is going to take place. Ideally low rates would help fuel an infrastructure spending plan. Would there be all on board with the spend plan? I suspect that is definitely something that would appeal to all segments of the political aisle. And so much for prudent spend. Yields have also spiked, in part as a recognition that higher borrowing means the issuers of debt (The US Treasury) is a little more risky, also rates are likely to go up in an environment like this.

All I can say is that before jumping the gun, think clearly about your investment strategy and what you are trying to achieve in the long run. All too often you see individuals that are reactionary and that ends up being "bad" for them in the long run. Bad ..... as in chasing their tails in and out of the market, being reactionary to a situation and wondering whether or not to sell stock or sector x as a result of y happening. 3 to 5 years is a very long period of time, think if you still want to own that stock in that time, and then do nothing.

Regardless of politics, as that changes day to day, the situation is always "fluid". See this article, government workers may be in for a rude awakening - Trump has a plan for government workers. They're not going to like it. Everyone wants the same thing with government spend. Accountability.

At the end of the record breaking session last evening in New York, New York yesterday the Dow Industrials printed a closing high of 18956 points (adding nearly half a percent on the day), the all time high. C'mon 19000, come to me! The broader market S&P 500 also printed an all time high, up three-quarters of percent to end the session at 2198. The nerds of NASDAQ closed nearly nine-tenths of a percent better, the new all time high closing level is 5368 points. This is the first time that all three indices have closed at record highs since the middle of August.

Does a level of an index matter when owning individual stocks? Not in my world, perhaps for many others it is a consideration. Facebook led the charge, surely a 6 billion Dollar buyback is not the only reason? The board approved this Friday, the stock rallied over 4 percent. It may only be two percent of the market capitalisation, it represents that at a board level, they think that the stock is cheap enough to utilise precious resource in this manner. Remember that not all buybacks are equal.

Facebook has, before this share purchase (they may have bought a lot of stock already), around 29 billion Dollars of cash to deploy. We were having a chuckle about the "failed" and "disastrous" IPO back in May of 2012, it seems that the company got through that just fine, not so? CNBC used to interview Trump back then, they had a segment called Trump Tuesday and he bemoaned the fact that he didn't get any shares, citing that he was "too rich". Anyhows as he says, his only intention was to flip the stock.

There was something that grabbed my attention in that link in yesterday's piece, the link titled A Lesson from the Market's Overreaction to Trump's Win. I think that it deserves some more attention. The average daily return for the equities market post World War Two is 0.03 percent. That is it. A fraction, each and every day. Investing is like Gridiron Football, inches won day in and day out. The monthly return is equally uninspiring at face value, the average return for each month since the second world war is 0.7 percent per month. And then per annum, the average return for the US markets is 12.74 percent. Obviously one has to account for returns relative to the risk free rate, US treasuries.

What would you get for that return? If I had to say to you, at a yield of 1.8 percent per annum, reinvest that in a 100 thousand Dollar portfolio for 25 years and what sort of return are you like to have? The number is 2.341 million Dollars. Without doing "too much" really. Just staying patient and making sure you avoid selling when the going gets tough, or harvesting and selling as a result of feeling the market is "too high". Much of investing is doing very little most of the time.

The thing that really grabbed my attention however was how the returns tend to be very lumpy. Some great years, some horror years, some months that look like you are a teenager stuck on Elm Street with a dude named Freddy. The point is that everyone spends a great deal of time obsessing about the next market slump that they miss the whole idea of steady investing, adding when stocks look weak and making sure that you avoid the pitfalls of selling at the bottom. I have yet to meet anyone who gets truly excited about stocks going down. Those with cash to deploy get truly excited and have conviction, of those people there are few. This graph, taken and shaken from Cullen's blog (thanks in advance). Actually there are very few events when the equities market drops ten percent plus. It hardly ever happens.

Yet ..... people talk about it all of the time as if their hard earned money is going to evaporate. Our advice often to private individuals is to always hang tight when the going gets tough and equally not to be tempted to fiddle when stocks look like they get "too high". Be more Mosquito Coast and less Money Never Sleeps. Pay attention still, don't go completely off the grid and get all weird with us, I am just saying that you shouldn't get anxious, as this graph below clearly shows, most of the time the returns are actually boring. This is also grabbed from the same piece (thanks Cullen), this is the annual returns, again, the returns are lumpy.

Much time is spent obsessing about infrequent events. Much time is spent worrying about the market making new highs. Less worrying and more paying attention.

Back home where local is lekker, stocks were not feeling the love. In parts there was definitely some strong action, the resource stocks had a good day, up a percent and a half. Industrials sank around three-quarters of a percent, the overall index closed up shop around 30 points lower, which is 0.06 percent, hardly a move of any substance. There were results and announcements aplenty, Curro announcing that they were buying just over half of a Botswana based university that specialises in teaching. Nice. Good work Curro. I suspect that this is part of a broader expansion plan into Sub Saharan Africa. If you can control the quality of the teachers and offer them gainful employment in your schools, it seems like a win for everyone.

Something struck me yesterday about the size and scale of industrial South Africa. In so much that we know our food businesses well, and there were results from Pioneer Foods, Astral Foods and the Rhodes Food Group, if you add their annual revenues together (Rhodes around 8 billion Rand annualised from these interims, Pioneer at 20.6 billion Rand for this full year, Astral at 11.9 billion Rand) you get to nearly 40 billion Rand. These are brands you know well, you have many in your pantry, you are a great consumer of their products. Barloworld also reported numbers yesterday morning, their annual revenues were marginally higher than last year, clocking 66.5 billion Rand. In fact, if you add RCL annual revenues of 25 billion Rand to these other food producers, you have the same annual sales as Barloworld.

All the Farmer Brown Chickens, all the Epol food, all the Rainbow Chickens (and other brands too, including eggs), all the Bokomo cereals (including Weetbix and Pronutro), all the Ceres juices, all the various pies that Rhodes sell, all the prepared meals that these groups sell, all the maize and rice they sell is the same as one company, Barloworld. Four well known company brands collectively sell as much as the industrial titan that is Barloworld. Yet .... when we think of industrial giants in a South African context, sometimes this company is too often compared to their glorious past and the days of Punch Barlow. Perhaps that is unfair.

On balance, Mr. Market acted positively to all of these numbers, Astral was fractionally higher, I passed a solemn looking Chris Schutte at the JSE in the CNBC studios, he didn't seem his cheerful self, perhaps he is taking the Springboks loss to Italy badly. Rhodes traded up 1.8 percent, the market happy for the time being with the numbers being delivered, the broader consensus is that they will have to continue to do some heavy lifting in order to justify their lofty valuation. Pioneer fell a little, down three-quarters of a percent on the day. Barloworld was the big winner, up nearly seven percent on the day. Clive Thomson hanging in there in what is definitely a tough environment out there!

Linkfest, lap it up

For you and me we buy shoes to be worn as shoes, for some it is more an art and is collected - A look inside Sneaker Con, the "Greatest Sneaker Show on Earth". The more that sneakers are seen as cool, the better it is for the likes of Nike where wearing their shoes outside of a sport context is sociably acceptable.

Barry Ritholtz takes a look at physiological biases/errors we make. It is human nature to find and see things that correlate with the way we see the world, the example used in the blog is how voters viewed economic data leading up to the US election - Dangers of a Fact-Free America

As the December shopping season approaches credit cards are itching to get out of pockets - Black Friday: The Holiday Surge in U.S. Consumer Debt and Spending. The graph below highlights why this period is so important to retailers, the increased revenue now needs to compensate the spending drop off that occurs in the New Year.

Home again, home again, jiggety-jog. Stocks across Asia are higher, Japan, China (and Hong Kong) all benefitting from a stronger Wall Street overnight. Some follow through here today no doubt! Hey, when are those ratings agencies in town and will we be able to stave off any downgrade of any sort. Yes? No? And if so, is it baked in the cake already?

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